The Reserve Bank of India (RBI) has proposed a harmonised framework to make interest-rate determination on loans more transparent and systematic for Urban Cooperative Banks (UCBs) and Rural Cooperative Banks (RCBs).
Under the draft directions, Tier-3 and Tier-4 UCBs and RCBs with deposits above Rs 1,000 crore will have to base their internal benchmark on the marginal cost of funds. The benchmark-linked lending rate will be called the Marginal Cost of Funds Based Lending Rate (MCLR). These banks will also have to publish the applicable benchmark on the first calendar day of every month.
For Tier-1 and Tier-2 UCBs, the proposed maximum three-month reset requirement for floating-rate loans will not be mandatory. The three-year restriction on revising non-credit-risk components of the spread will also not be mandatory for these banks.
UCBs and RCBs will also not be required to mandatorily link floating-rate personal and MSME loans to an external benchmark.
Existing loans linked to internal or external benchmarks will have to be migrated to the new framework by April 1, 2029, with borrower consent, without increasing the applicable interest rate or charging migration fees.
The directions are proposed to take effect from April 1, 2027.
